Is the Limited FHA 203k Different from the Streamline 203k?

The Limited FHA 203k has arrived. In September of 2015 the staple of renovation financing – the Streamline 203k -got a facelift and was replaced by the new and improved Limited FHA 203k.

So, what changed with our favorite renovation loan and how will it affect Delaware borrowers looking to employ FHA 203k financing?

Many of the changes were semantic – updating disclosures, forms and worksheets – and will have little affect on how you obtain renovation financing or the scope of work you are allowed to employ.

That said, some changes to the FHA 203k program are significant and will make life easier on all renovation loan specialists and borrowers alike.

Significant Differences Between the Streamline and the Limited 203k

The emergence of the new Limited FHA 203k includes some guideline changes that are both universal and geographically important for potential buyers looking to use FHA 203k financing.

So, what changed and what do we mean by “geographically important”?

For example, the old Streamline 203k did not allow any pool repairs. The new Limited 203k has very few restrictions on pool repairs. While that might not be important for Delaware borrowers, it’s huge for Florida and other sunshine states scattered throughout the Southeast, Mid-west and West Coast areas of the US.

One of the biggest changes – outside the removal of burdensome restrictions on pool repairs – is with the 203k appraisal process.

The streamline 203k did not require – or even want – an “AS-IS” value attached to the property and appraisal report. “After Repair Value” (ARV) was all that mattered. The new limited 203k requires both “AS-IS” and “ARV” on every 203k purchase.

This is important to note too. Overpaying on the purchase price – offering to buy the home at more than its current market value – can hit your pocketbook hard.

If a home is currently worth $300,000 in its “as-is” condition and you offer the seller a sweet $320,000 to buy the home, you will be required to cover the difference as part of your down payment.

That additional $20,000 over the current value is not chump change for FHA buyers who are generally looking to take advantage of the low 3.5 percent down payment that nearly all FHA Loans offers.

HUD does not want you to overpay for a home despite the fact that the after-repair value may be sufficient to support your renovations.

Part of the reason is to mitigate risk involved with the entire project going south and, no doubt, part of the new guidelines are for fraud prevention purposes. The first reason should be of little concern since we’re going to employ our expertise to help you properly vet any contractors you wish to put to work on your renovation project.

The latter reasoning is simply HUD watching its back and should be understandable and reasonable for buyers pursuing FHA 203k financing.

On a 203k refinance the appraised value needs only the “after-repair value” which is similar to the old Streamline 203k guidelines with some added clarity. In the past there was some disagreement on the appropriate way to value a home on a renovation refinance. Hopefully, the confusion is mitigated going forward.

What Stayed the Same on the Limited FHA 203k?

Quite a lot actually. For the most part the allowed renovations are the same. You can still tackle the following:

FHA 203k Streamline Eligible Repairs

Windows & Doors

Roofs, Fascia & Soffits

HVAC & AC Systems

Kitchen Renovation

Bathroom Upgrades

Flooring

Appliances

Decks, Patios & Porches

Handicap Accessibility

Well & Septic Systems

Electrical Upgrades

Energy Efficient Improvements

Interior & Exterior Paint

and more…

Still not sure what renovation mortgage is right for you? Getting conflicting information from another renovation lender? Whatever issue you are experiencing – whether it be regarding the limited FHA 203k, the standard 203k or any other renovation product – we can likely help. Call 302-703-0727 to speak to a FHA 203k Loan Expert.

About John Thomas

John Thomas and his team are long-time Delaware natives. They know the local real estate market as well as they know the loan products that help them serve it.

Dedicated to helping first-time buyers; the John Thomas Team are experts on first-time buyer loan programs (FHA, VA, USDA) and conduct monthly first-time buyer seminars that have been attended by more than 3000 Delaware buyers.